EUR/USD – Euro Pushes Above 1.13 on Dovish Yellen Remarks

EUR/USD continues to rally, as the pair has posted small gains on Wednesday. In the European session, the pair is trading at 1.1320. On the release front, Germany will release Preliminary CPI, with the estimate standing at 0.6%. In the US, we’ll get a look at ADP Nonfarm Employment Change, with the markets braced for a reading of 195 thousand, well below the previous reading of 214 thousand. On Thursday, the Eurozone releases CPI, while the US will publish Unemployment Claims.

The US dollar sustained broad losses on Tuesday, following ultra-dovish remarks from Janet Yellen, the chair of the Federal Reserve. Yellen called for the Fed to continue its cautious approach towards monetary tightening, given the turbulent global economy and risks due to the Chinese slowdown. Yellen downplayed higher inflation levels, which in January reached 1.7 percent, the highest in almost two years. This reading is not far from the Fed’s target of 2.0 percent and some Fed members have gone on record saying that the Fed should raise rates before inflation pushes above the 2.0 percent threshold. At the same time, Yellen acknowledged that there were encouraging signs in the US economy, including a strong labor market. Her comments dampened recent speculation about an April rate hike, which was precipitated by a flurry of hawkish comments from Fed officials. It will be interesting to see if Yellen’s cautious assessment will be reinforced or challenged by Fed members in the coming days.

US economic growth in the fourth quarter was respectable, but there are signs that we could see softer numbers for the first quarter of 2016. Earlier this week, the Atlanta Fed downgraded its forecast for Q1 from 1.4 percent to 0.6 percent. The original forecast, released just last week, was lowered in response to a downgraded forecast of personal income and outlays by the US Bureau of Economic Analysis. US Final GDP for the fourth quarter rose 1.4 percent, above the estimate of 1.0 percent, but lower than the 2.0 percent gain in the third quarter. If US economic activity did in fact weaken in Q1, we could see the US dollar lose ground against its major rivals.

One of many headaches for ECB head Mario Draghi is a lack of inflation in the Eurozone, reflective of weak economic activity in the bloc. The markets will get a close look at the inflation picture later on Tuesday, with the release of German Preliminary CPI. The markets are expecting a gain of 0.6 percent for March. The indicator posted a gain of 0.4 percent in February, its highest level in 11 months. The Eurozone will release CPI reports on Wednesday, and if these consumer inflation numbers beat expectations, the euro rally could continue.

EUR/USD Fundamentals

Wednesday (March 30)

• All Day – German Preliminary CPI. Estimate 0.6%
• Tentative – Italian 10-year Bond Auction
• 12:15 ADP Nonfarm Employment Change. Estimate 195K
• 14:30 US Crude Oil Inventories. Estimate 3.1M

Upcoming Key Events

Thursday (March 31)

• 9:00 Eurozone CPI Flash Estimate. Estimate -0.1% 
• 12:30 US Unemployment Claims. Estimate 266K

*Key events are in bold

*All release times are DST

EUR/USD for Wednesday, March 30, 2016

EUR/USD March 30 at 9:50 DST

Open: 1.1289 Low: 1.1286 High: 1.1335 Close: 1.1317

EUR/USD Technical

• EUR/USD was flat in the Asian session and has posted slight gains in European trade
• 1.1278 remains busy and has switched to a support role following gains by EUR/USD on Tuesday
• There is resistance at 1.1378

Further levels in both directions:

• Below: 1.1278, 1.1172, 1.1087 and 1.0941
• Above: 1.1387, 1.1495 and 1.1609
• Current range: 1.1278 to 1.1378

OANDA’s Open Positions Ratio

EUR/USD ratio is showing strong movement towards short positions, consistent with the strong gains of EUR/USD, which has recorded strong gains and covered long positions. Short positions have a strong majority (61%), which is indicative of strong trader bias towards EUR/USD reversing directions and dropping to lower levels.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.